Texas elections spark concerns for AI investment sector

Incumbent Republican Governor Greg Abbott faces challenges from Democrat Gina Hinojosa and Libertarian Pat Dixon in his bid for a fourth term. Simultaneously, Democrat James Talarico and Republican Ken Paxton are in a close contest for the Senate seat. Texas holds significant importance in the data center industry, accounting for 27% of data center gigawatts, according to Wells Fargo estimates. A recent University of Houston survey, conducted October 10-14 with a margin of error of 2.19% and involving 2,000 likely voters, revealed that over 80% of Texas voters express concerns about the impact of data centers on water supply and electricity prices. Governor Abbott previously implemented a halt to data-center permitting in September, stating, “Texans must come first.” The outcome of these elections could exacerbate existing anxieties surrounding AI financing and valuations, as the Nasdaq-100 has recently entered correction territory, declining 10% from a record high. John Sonsalla, president at Washington Analysis, cautioned that a victory for both Talarico and Hinojosa would carry significant negative implications for the AI trade. Julian Emanuel, strategist at Evercore ISI, highlighted the differing approaches to data center moratoriums, noting that Abbott is likely to lift the moratorium while Hinojosa is expected to maintain it. While the long-term impact of a single election on the substantial economic shift of the AI trade is likely minimal, shorter-term volatility remains a possibility. Concerns about profitability, capital expenditures, and macroeconomic factors have already contributed to fluctuations in the sector, with the PHLX Semiconductor index down 19% and the Global X AI and Technology ETF down 10% in the past month. Democrat proposals, such as ending tax subsidies and increasing standards for labor and environmental practices, could further influence the data center landscape. However, Democratic gains at the state level could benefit AI companies at the federal level through increased efforts to protect domestic industry and compete with Chinese firms. A potential return of President Trump is also viewed as favorable to the AI trade, with expectations that he would veto legislation deemed detrimental to technological investment. Paul Gallant at TD Cowen suggests Democrats may adjust their approach to AI safety laws to gain Trump’s approval or focus on messaging bills aimed at future elections.